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Mumbai: About $10 billion is set to flow into India after New Delhi proposed setting up independent asset management companies (AMCs) to quickly resolve bad assets, stoking interest among global financing experts such as Oaktree Capital, Bain Capital, and Altico.

With India’s lending industry battling to extricate $210 billion stuck in bad loans, global financiers such as KKR, or Singapore-based Broad Peak anticipate significant business potential in a sensitive pocket of banking that has fallen short of achieving the desired targets, hamstrung by protracted litigations. If dedicated AMCs were in place for such assets, potential buyers or investors would get the platform to secure assets without having to worry about prolonged legal processes.

“With the AMC proposal, many foreign players would be keen to invest in distressed assets in India,” said Jayesh Mehta, MD at Bank of America Merrill Lynch.

“They may come in groups to buy toxic assets bringing in at least $10 billion fund flow in the next one year,” said Mehta. “This could well be a relief for Indian banks, battling soured assets. Many such players are frequently taking updates on the possible modalities from Indian industry players.”

Earlier this month, the government accepted a five-pronged plan suggested by the Sunil Mehta-panel to speed up the resolution process.

The finance ministry is planning to set up the first AMC within a month or two and then quickly solve a few cases. It will make the pitch stronger to relax the February 12 circular before the first deadline on August 31, said a person involved in the process.

“There is a strong appetite for distressed assets in India as many Indian ARCs and funds and global investors have billions of dollars to invest in these (distressed assets)...,” said Rashesh Shah, chairman and chief executive at Edelweiss Group.

“But, banks need to agree on a reasonable pricing under the proposed AMC mechanism,” he said.

“Lenders cannot get high upfront cash and also share the upside in these assets. They have to choose one and we need a market clearing price,” said the chairman of the group that runs the country’s largest asset reconstruction company.

The Mehta panel has recommended an asset management company/alternative investment fund (AIF)-led resolution approach to deal with bad loan cases of more than Rs 500 crore.

An alternative investment fund would raise money from institutional investors to fund any AMC that will buy problem loans.

“The size of the bad loan problem and the active efforts by the government and regulators to try and address it will throw up many opportunities for private equity firms,” said Kunal Shroff, Managing Partner, ChrysCapital.

PE funds are exploring various avenues, including collaborating with a strategic partner, to jointly acquire a business that has become a non-performing asset.

“The opportunity to help resolve the problems in the Indian banking sector is significant — probably one of the largest amongst such opportunities, across the world today,” said BV Krishnan, Member, KKR and CEO, KKR India Financial Services.

“Apart from the distressed (assets) opportunity, we continue to believe that (there is) a very large need for longterm debt capital for mid-market companies, which today are suffering from lack of capital access with banks.”

He also said that it is not immediately clear how the suggested AMC model would allow banks to return to their core business “and start lending to corporates in the immediate term.”

Another opportunity is partnering with entrepreneurs who have a good business but are over-leveraged and at risk of losing their business to the banks, Shroff said.

“An injection of equity could strengthen the balance sheet as well as fund future growth.”

Earlier in February, the Reserve Bank of India ordered banks to finalise a resolution plan for large default cases of Rs 2,000 crore and above within 180 days. If they fail to do so, insolvency proceedings will have to be invoked against the defaulter raising bank provisions against bad loans.

The catch is, all lenders should agree for the resolution within the stipulated period. Critics raise doubts over inter-creditor agreement without which any move falls flat.